Public Administration Select Committee

Responsibility for overseeing the operation of government

Parliamentary & Healthservice Ombudsman, Ms Ann Abraham, being questioned by Grant Shapps MP about the failings in the Tax Credit system.

This recording covers the 20th October 2005 session and contains only the segment where Grant Shapps MP questioned Ann Abraham.

Audio only 2.1mb approx size

Right Click with your mouse (not left) and select "Save Target As" and then choose a location on your hard drive or desktop. Once downloaded open the file from that location by double clicking.


 Executive Chairman of HM Revenue and Customs, being questioned by Grant Shapps MP about the failings in the Tax Credit system.

This recording covers the 20th October 2005 session and contains only the segment where Grant Shapps MP questioned David Varney.

Audio only 3.2mb approx size

Right Click with your mouse (not left) and select "Save Target As" and then choose a location on your hard drive or desktop. Once downloaded open the file from that location by double clicking.

Requires an MP3 player. Windows Media Player -- Free Download here

 

Transcript of questioning of Ms Ann Abraham by Grant Shapps MP:

Q1  Grant Shapps:  On this point, one-third of households overpaid to a total of £1.9 billion in 2003/04.  Everything points towards it being worse now, certainly according to the workload that is coming to us and on to you, yet in your report, which was not published that long ago, you said that the system is still not in disarray.  What would constitute disarray, in your view?

Ms Abraham:   Well, I suppose if all the customers in receipt of tax credits were experiencing the problems that the customers that we are seeing and you are seeing are.  If you think of the huge numbers of people in receipt of tax credits, this is about people on low incomes, usually with children for whom these payments matter in terms of their weekly budget.  Now, I think the number of people in receipt of tax credits does not come into that description.

Q2  Grant Shapps:  So one-third of the system is not “disarray” and all of it would be “disarray”, whereas two-thirds would not.  I realise this is semantics in a sense, but I am curious as to how your report here actually describes it as not being in disarray by any measure.  I would have thought that £1.9 billion and a third of all households surely has to be worthy of the description “disarray”.

Ms Abraham:  Well, you will know that I choose my words carefully and I try very hard to be fair.

Q3  Grant Shapps:  I suppose in a sense it is because you choose your words so carefully and I know, therefore, that it is a deliberate description that I am so curious about the choice of word.  It just seems not to be, I suppose, in proportion to the size of the problem to say “not in disarray”.

Ms Abraham:  Well, I would still say that the entire system of tax credits is not in disarray.  There is a substantial part of the system that has serious problems.

Q4  Grant Shapps:  Do you think the system has got better or worse since that 2003/04 period that created the £1.9 billion in one-third of homes that you were describing as not being in disarray?

Ms Abraham:  Well, I can only talk from my perspective really and if you look at the number of cases coming to us, they have increased and they are continuing to be at a substantial level.  I do not think that any corners have been turned yet.  I suppose what I would say is that I think there is now more recognition, more understanding in our discussions with the Revenue of the scale and seriousness of the problem.

Q5  Grant Shapps:  I guess since the corner has not yet been turned, and I think we all recognise that, there may well be more than a third now of households overpaid, maybe a half or whatever, and we will leave aside whether that is yet sufficient to be in disarray, but I wonder whether I can draw you at all to speculate on whether the system will ever really work.  It seems to all of us, I think, although perhaps I should not speak for anybody else, that the system tries to track changes in people’s personal income too tightly, that it is an IT disaster, and we understand that over the summer there was a lot of work done to try and improve the computer system in order to keep up to speed, but that in fact that work is probably largely too late because it came many months after a pledge was made that money would not be taken away if it had been overpaid, or, as has been discussed, there is just the wrong sort of client base for this sort of tax-driven approach.  They are not used to dealing with these things, as you said yourself, cannot wait until the end of the year and find the forms immensely complex.  I have piles of them in my casework and they are almost impossible to fathom out and it does not actually, as perhaps the Inland Revenue thinks, make it any easier just because you have received 100 of them.  Actually their response so often, which is why so many cases come to you, is simply to resend the same information again and it is no plainer the second time, in my view, so it is a baffling system.  I wonder whether it is the tracking of the changes too tightly, the IT problems or the wrong client base, if you like, for the system which in your view is most at fault and whether, therefore, it can ever be resolved.

Ms Abraham:  I think all the questions you pose are entirely appropriate and entirely relevant given where we are.  I think, if I may say so, my report poses most of those questions.  I take as a given that this is the system that Parliament has decided, that the Government has put in place and, therefore, I will look at the administration of that system, but it goes to the heart of what I said in response to Mr Hopkins’ question.  If I can read you recommendation 12 of my report which is all about a whole-case approach, it says, “The Revenue should consider the way it organises delivery of tax credits in order to deliver a better, more complete service to the customers it now serves.  A different model is needed in complex cases and where something has gone wrong.  More sustained and informed communication with customers about their cases is essential, as is a ‘whole case’ approach to investigation to ensure a tax credits award is correct”.  It is this shift, I think, towards a full understanding of the customer base and just what it means to be in receipt of one of those notifications in relation to recovery of overpayments, what it means in terms of what you are going to put on the table for tea tomorrow.

Q6  Grant Shapps:  So taking all of that into account, it sounds to me like this current system may never really ever work properly.

Ms Abraham:  I reserve judgment on that and I do not say that flippantly.  I think what this report does is raise questions.  The Revenue are responding, as I understand it, with some very substantial changes and improvements to the administration of the system which they clearly believe will make it work better.  I will wait and see.

Q7  Grant Shapps:  So it is not in disarray yet, in your view, although we think it might be getting worse, and I will be interested to read your report next year, and the Revenue or ministers, rather, have actually said that it will take two or three cycles possibly to settle down, but what is your understanding of the timescale involved in two or three cycles?  Are they talking about cycles of the moon or when can we expect this?

Ms Abraham:  Well, you must ask them that question, but I suspect they mean two or three years.

Q8  Grant Shapps:  That is your understanding, two or three years?

Ms Abraham:  Yes.

Transcript of questioning of David Varney by Grant Shapps MP:

Q1  Grant Shapps:  Mr Varney, really this is not your fault at all.  I imagine you must feel that Parliament has handed you this piece of legislation and asked you to get on with it and you are gallantly trying to defend a system which certainly looks to me to be in something approaching disarray.  The problem is that the system is fundamentally flawed, is it not?

Mr Varney:  I thought I had answered that question earlier.  It is a system which has produced a number of considerable benefits.  It is a system which is challenged in areas which were identified by the Ombudsman.  We also have the challenge of having an understanding that the system Parliament has designed is responsive to change in circumstances.  It is not a benefit.

Q2  Grant Shapps:  I heard you say all those things but the reason I am picking up on it again is really twofold.  First of all, HM Revenue has never, ever been in a position before of having to track things on a monthly basis.  That is just not what you do, is it?  You do things at the end of the year.  Your system is being put under considerable change by attempting in any way to keep up with people’s alterations in income on a very precise basis.  You have referred to that in your previous response.  What Ann Abraham has mentioned there seems to be the difference in perception between perhaps the Ombudsman and the Revenue -- or maybe it is all you -- and us and our constituents, which is simply that what you consider to be the system working -- i.e., overpayments and underpayments just happening -- is for many of our constituents an absolute crisis.

Mr Varney:  We are involved obviously with some people who we would not normally be involved with in the process, because they are under the threshold with income tax and the rest, but we do operate the PAYE system which is also responsive to changes in income.  Either it picks it up because you advise us, in which case you get a new coding from the income tax system, or at the end of the year you report all your circumstances to us and we either decide you have made an underpayment or you have made an overpayment.

Q3  Grant Shapps:  One of the features of the PAYE system is being in constant, sustained work usually and that means that those smaller changes may not make quite such a big difference.  We are agreed on that.

Mr Varney:  Fully, but there you are earning an income.  I did say to you about the overpayments that the vast majority were generated by changes in income level above the 2,500 threshold and that half of those were accounted for by people whose circumstances had increased by over 10,000.  That is not to say it does not cause hardship in some cases.

Q4  Grant Shapps:  Can you tell us the number of overpayments resulting from Revenue errors?  You have been very clear on problems resulting from your customers’ errors.

Mr Varney:  We have some errors in terms of computer and ----

Q5  Grant Shapps:  I do not think we have had any numbers.

Mr Varney:  No.  In terms of the details of the errors and their values, they are included in page R18 which is attached to our annual report, which is the NAO’s chapter on errors and write-offs.  I can leave that with the clerk or would you like me to read it?  It is not the most gripping read in the world but I am sure you get even more boring stuff than this.

Q6  Grant Shapps:  I think you are probably in the position where we have given you legislation which is very difficult for the Revenue to try and respond to in time, but we know that there are problems that have occurred and one of those problems has been overpayment; but whilst there has been a recovery going on moneys have still been claimed.  In January of this year, I think you were in front of the public accounts committee and you said that systems would be put in place to stop those chasing letters.  I understand there were problems with the computer in doing that and you had to trick the computer.  Have you managed to trick it yet?

Mr Varney:  Not yet.  When I spoke to the PAC I said it would be the hope that we could get it in.  The problem with the computer system is that we have stabilised it so it is working and functioning but every time we change it it is not completely transparent what the knock-on effects are.

Q7  Grant Shapps:  I understand you worked on the system over the summer, for example?

Mr Varney:  Not just the summer.  It is a bit like the Forth Bridge.

Q8  Grant Shapps:  You told the public accounts committee that in January.  We are in the third week of October and people are still receiving those chasing letters, are they not?

Mr Varney:  We are in dialogue with the Ombudsman and considering if there is a sensible, reasonable way in which we could administratively deliver what we are committed to, some form of pause, but I do not want to agree to something which is going to generate even more chaos than we have.

Q9  Grant Shapps:  You are a public servant.  You try to do your best but this is absolutely impossible, is it not?  You have gone to a select committee in January.  You told them something would be done.  It has not been done.  We are nearly 11 months through the year from that time and we do not even have a timescale for when this might or might not happen.  I am quite sure you are sympathetic enough to be able to put yourself in the position of our constituents who are being driven to distraction and, in many cases, are in personal crisis and chaos because of this system.  When can we expect something to work?

Mr Varney:  We have so far this year done two major releases on the new tax credit system.  Both of them have gone through, so far as I know, touch wood, without causing a problem.  That has required massive engineering intervention of IT specialists in order to make sure that the system does not have an unintended consequence.  I do not think there is an understanding that we have made a considerable number of improvements which have been risk free.  We have derisked the introduction of those interventions.  We are looking to be more confident that, when we want to do something on the computer system, it does not generate another wave of misunderstandings, of angst and problems for people.  We are all committed to make sure they do not suffer this.

Q10  Grant Shapps:  Neither of those interventions are to do with suspending the disputed recoveries?

Mr Varney:  No.

Q11  Grant Shapps:  Do we have a timescale?

Mr Gray:  Let me explain where we are on the suspension issue.  On our latest planning for major IT releases, we think we should be in a position to put in place in 12 months’ time a fully computerised, automated process for operating the sort of suspension mechanism that David mentioned.

Q12  Grant Shapps:  We have to wait another year?

Mr Gray:  For a fully automated, computerised system.  In the interim, we have been urgently working over the course of the summer as to whether we thought we could come up with a part manual/part computerised way of doing this, which is not fully integrated into the system and which will require quite a lot of manual interventions, that we felt was sufficiently robust and sufficiently safe and, if we introduced it, it would generate a significant net improvement in the position rather than generate additional problems of the sort the Ombudsman was talking about.  We are still in a position of urgently seeing whether or not we are going to be able to do that in a much shorter timescale than a fully automated process in 12 months’ time.

Q13  Grant Shapps:  Given that it is going to be another year until our constituents stop being chased where there is a disputed recovery, what should our message be to constituents who come and tell us, “I am being chased.  I have been disputing this.  I am getting more and more concerned about these chasing letters getting more and more vicious”?  What should we be telling them?  Do not worry?  Throw it away?  Paper the wall with the letters?

Mr Gray:  You certainly should not be saying that.  What we are very conscious of is, early this summer, we had a very large backlog of disputed overpayment cases to be dealt with.  At one point this had reached well over 100,000.  One of our biggest priorities over the course of the summer has been to move to resolve that backlog of disputed overpayments so that we are bringing right down to a minimum the number of people who have raised a dispute and where recovery is underway but we still have not resolved the substantive issue.  We have made pretty substantial progress over the course of the summer.  That backlog is now down to about a third of the size that it was.  We are looking to drive that down much further over the coming weeks.

Q14  Grant Shapps:  The message to the constituent would be?

Mr Gray:  If you have not yet had a decision in relation to your dispute, you are part of a significantly declining backlog and we are aiming to get that substantive answer to you as soon as we can.

Ms Walker:  It is also true that if the recovery of an overpayment causes hardship to a household and they let us know of that there are things we can do very quickly to make sure that we restore the payments and give them extra help on hardship grounds.

Q15  Grant Shapps:  I certainly have some individual cases that fall into that category.  90,000 official errors, according to that document you are holding up, just to get that onto the record.

Mr Varney:  88,000.

 

Promoted by Amanda Perkins on behalf of Grant Shapps, both of Maynard House, The Common, Hatfield, AL10 0NF